When I first tried trading Forex several years ago, using a demo account, I thought it wouldn’t be very difficult. I can’t explain why I thought that, but I did. All I did was watch the chart and try to guess when it would go up or down. Somehow, I thought this would be enough. I learned that it wasn’t enough, and for some reason I was determined enough to spend a long time finding out what methods I could use that did work. This wasn’t so hard to find, but I still had to waste a lot of time wrestling with my own stupidity and arrogance.
Are you the same as me in my early days? Are you reading about Forex strategies on the internet that tell you to do X and Y and make money? Are you trying to follow them with real money? If so, there are a few things I want to make sure you know.
Any Forex strategy you read about and decide to follow with real money should be tested over several years using real historical price data. If a strategy is presented to you without any evidence of how it performed in the past, why should you believe in it?
It might be that you don’t know that most Forex brokers make a little money from their clients making lots of trades, and a lot of money from their clients losing. With a big majority of Forex brokers (market-makers), they keep all the money you lose – it doesn’t go anywhere else. That does not mean they are dishonest, they are providing a service and taking a risk. It just means that you should think for your self when you see their marketing.
Most of the material you can read on the internet about trading strategies is financed by these Forex brokers. These brokers often have their own education sections on their websites. That doesn’t mean that what you read is necessarily wrong or written in bad faith. It just means that there is a lot of garbage out there and as a new trader, you might not be able to identify it. There is no shame in that.
You need to be careful. You need to understand that every single trade you make can become a losing trade. You need to use a method that you have a reason to believe in because if you don’t, you will never be able to stick with it, you will question it after losses come and lose your nerve. Constantly questioning and doubting everything you do is a good trait – but if you do not have answers, the doubt will paralyze you.
The good news is that there are methods which have been well studied and found to have some reliability. Yet even these methods will go through losing periods. There is no simple magic bullet that will make you rich quickly. Yet you can use trading to build wealth if you are disciplined and realistic.
It will help you to be careful, to ask questions, and to err on the side of caution